Tax-Exempt Organizations Provided Relief from Alternative Minimum Tax

Introduction of the corporate alternative minimum tax

The Inflation Reduction Act of 2022 introduced a corporate alternative minimum tax, setting a 15% minimum tax on adjusted financial statement income (AFSI) for corporations.

For tax-exempt organizations, this new tax framework resulted in the calculation of the corporate alternative minimum tax based on their unrelated business income (UBI).

This means that even organizations benefiting from tax-exempt status contribute a fair share of taxes on income not related to their primary exempt purpose.

Simplified compliance process

To streamline the compliance process, the IRS released Notice 2023-77, which, along with proposed regulations, introduced a simplified method to determine whether corporations, including tax-exempt entities, need to pay the corporate alternative minimum tax.

This methodology aims to provide clarity by reducing the administrative burden associated with the new tax calculation. However, the method did not consider the specific adjustments the statue provides to tax-exempt organizations.

Public comment and interim relief

The IRS is accepting comments on the proposed regulations until December 12, 2024. Meanwhile, all tax-exempt organizations are exempt from filing Form 4626 for tax year 2023 to allow time to review these comments.